No reason to doubt that the government will meet budget deficit targets: RBI governor Shaktikanta Das

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New Delhi: Reserve Bank governor Shaktikanta Das has put his weight behind Finance Minister Nirmala Sitharaman's budget figures, stating that there is no reason to doubt that the government's budget deficit will reach 3.5 percent of GDP as of April 1 can lower.

Das said in an interview with PTI that the government remained within the budget deficit limits set by the Committee on Budgetary Responsibility and Management (FRBM).

Sitharaman missed the deficit target for the third year in a row and pushed the deficit to 3.8 percent of GDP in the current fiscal year compared to 3.3 percent previously planned. The budget deficit target for the coming fiscal year from April 1 has been set at 3.5 percent.

The budget deficit is a government deficit compared to its expenditure. This essentially means that the government spends excessively.

"In terms of government budget management, the government has remained within the recommendations of the FRBM committee," said Das. "As a result, the excess budget deficit has been limited to 0.5 percent. The government has stuck to it, and much of the budget deficit funding next year will come from small savings."

The FRBM committee, led by NK Singh, recommended that the budget deficit be reduced to 2.8 percent in fiscal year 2020/21 and to 2.5 percent by fiscal year 2023.

The panel had proposed an "escape clause" in the event that national security, acts of war, national disasters and the collapse of agriculture, which severely affect agricultural production and income, are given greater consideration. Below this, a deviation from the defined budget deficit target can be taken, but this does not exceed 0.5 percentage points per year.

That said, there is no reason to doubt that the budget deficit will be made up for next year. "There is no reason for anyone to doubt this number. The budget was only submitted about two weeks ago. There is no reason not to believe this number," he said.

The budget decline announced in the government's new budget for 2021 is modest compared to the previous targets. The RBI governor said the 2020-21 budget had announced that certain bonds would be opened indefinitely to foreign investment.

"The budget also announced plans to raise corporate bond thresholds from 9 to 15 percent," he said. "Therefore, there are many foreign resources that will come to India. Indian companies today also access a lot of money from foreign sources through the ECB."

The RBI will ensure that its loan program is carried out without interruption.
"As a government debt manager, the RBI will definitely try to ensure that the loan program continues uninterrupted," he said.

Sitharaman's second budget includes some measures that could support GDP growth in the medium term, including reduced individual income tax rates, a relaxation of restrictions on foreign portfolio inflows, a continued focus on public infrastructure spending, and plans, the details of which have yet to be released, to support manufacturing in the electronics and textile industries.

Rating agencies have also supported budget figures. Fitch Ratings said earlier this month that budgetary assumptions, including 10 percent nominal growth and 9.2 percent revenue growth, were "largely credible" despite the downside risks.

"In particular, the previously announced lowering of the corporate tax rate and new reductions in the income tax rates should, in our view, lead to a short-term decrease in tax revenue before potential medium-term benefits arise. The sales target appears optimistic and is more than three times the estimated realization in the financial year 20," it said.

The government lowered the corporate tax rate from 30 percent to 22 percent in September last year, and announced in the 2020-21 budget that it would lower the income tax rate for those willing to give current exemptions and discounts.

Indian economic growth fell to an 11-year low in the July-September quarter when it saw a 4.5 percent expansion.

"Greater fiscal transparency with regard to off-budget funding is welcome, as the new budget now explicitly recognizes that 0.8% of GDP loans from the National Small Savings Fund were in both FY 20 and FY 21 were included, for example to fund food subsidies, although this does not take into account the headline (which would be 4.6 percent of GDP instead of 3.8 percent in FY20), "Fitch said.